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Know your eligibility for claiming the facility of Letter of Undertaking in place of Bond

Letter of UndertakingCBEC has released Circular No. 5/5/2017-GST on 11th August 2017, given clarifications on the above top of the eligibility of exporters for declaring the service of correspondence of challenge rather than of bank guarantee for exports.

This circular of Aug 11, 2017, is issued to further explain the Notice no. 16/2017 GST on July 7, 2017, and Circular no. 2/2/2017 GST on July 5, 2017, and Circular no. 4/4/2017 on July 7, 2017. In exercise of the abilities conferred under section 168(1) of the Main Products and Service Tax Act, 2017, CBEC has given clarifications in Circular no. 5/5/2017 GST on Aug 11, 2017.

Letter of Undertaking (LUT) was restricted to manufacturer-exporter only. This objective of this supply was to liberalise the service of LUT and increase it to all sorts of providers. CBEC has now resolved that any registered person who has received a minimum foreign exchange inward remittance of:-

  1. a) 10% export turnover in the previous financial year
  2. b) Such quantity should not be less than Rs one crore

This signifies that only such exporters are able to LUT facility who has received a remittance of Rs 1 crore or 10% export turnover whatever higher amount is in the previous year. CBEC has given following situations to explain this point as given below:-

1) An exporter has an export turnover of Rs 15 crore in the previous financial year. This exporter is qualified for LUT service if he has Rs 1.5 crore as inward remittance against this exporter.

2) An exporter has an export turnover of Rs 5 crore in the previous year. In order to be eligible for LUT service, he should have received Rs 1 crore as inner remittance against this business is the situation that the lowest quantity is Rs 1 crore.

3) An exporter has got an export turnover of Rs 2 crore in the previous year and he has Rs 80 lakh as inward remittance in the previous year. This works out to 40% of total export turnover but still, he will not consider for LUT service because the exporter does not comply with the condition of lowest Rs 1 crore inward remittances.

4) The exporter has an export turnover of Rs 40 crore in the previous year. He has Rs 2 crore towards inner remittance in the previous year. This exporter also is not qualified for LUT service because the remittance received is less than 10% of the export turnover even though it is at more than Rs 1 crore.

5) An exporter created an export turnover and received Rs 1.2 crore as inner remittance in the previous year as 20% of the export turnover. He is qualified for LUT service.

Status-holders (export houses) as specified in para 3.20 and 3.21 of the International Trade Plan 2015-20 qualify for LUT service regardless of whether they fulfil the above circumstances.

Forms for LUT/Bonds

Bonds are usually equipped with non-judicial stamp paper while LUTs are usually presented on letter-heads containing signature and seal of the person or the person authorized in this part provides in the said notification.

Time for Approval of LUT/Bond

The LUT/Bond is a before need for exports, such as provides to an SEZ developer or SEZ device, the LUT/Bond should be prepared on top-most concern and should be authorized within a period of 3 working days from the time frame of distribution of LUT/Bond along with complete documents by the exporter.

Purchase from producers and type CT-I

In a pre-GST era, CT-I type was used for when buying products by vendor exporters from producers without a deal of Main Excise responsibility. The plan keeps no importance under GST since the deal between a producer and a vendor exporter is in the characteristics of supply and the same has not been excused under GST, even on the distribution of LUT/Bond. Therefore, such supplies would be topic to GST. The zero ranking of exports, such as provides to SEZ, is permitted only with regard to supply by the particular exporter under LUT/Bond or deal of GST.

Transaction with EOUs

Zero ranking is not appropriate to supply to EOUs and there no special dispensation for them. Therefore, provides to EOUs are taxed under GST just like any other tax supplies. The EOUs, to the level of exports, qualify for zero ranking like any other exporter.

Forward inward remittance in Indian rupee

Receipts of continues of supplies in Indian rupees, especially with regard to exports to Nepal and Bhutan and SEZ Developer/SEZ device have been resolved. CBEC quotations RBI Master circular and states that there is no limitation on invoicing of business agreements in Indian rupees in regards to the Master Direction of RBI and para 2.52 of International Trade Plan 2015-20. All business agreements and receipts shall be denominated either in easily sports convertible currency or Indian rupees but business continues shall be noticed in easily sports convertible currency. However, business continues against particular exports may also be noticed in rupees, offered it is thro’ an easily sports convertible VOSTRO consideration of a non-resident bank operating out of any country other than the part country of Asian Clearing Union (ACU) or Nepal or Bhutan.

It is resolved that acceptance of LUT instead of Connection for provides of products to Nepal or Bhutan or SEZ developer or SEZ unit will be allowable, no matter whether debts are paid in Indian forex or sports convertible forex or sports convertible foreign exchange as long as they are in compliance with appropriate RBI recommendations.

It is also to be mentioned that availability of solutions to SEZ developer or SEZ unit will also be allowable on the same collections. The availability of solutions, however, to Nepal or Bhutan will be considered to be business of solutions only if the deal for such solutions is received by the supplier in sports convertible foreign exchange.

Bank Guarantee

The Commissioner may postpone the necessity to provide bank guarantee considering the information and situation of each case. Circular 4/42017 on July 7, 2017, provides that financial bank guarantee (BG) should normally not surpass 15% of the Bond amount. Liberal interpretation by the Commissioner to allow waiver of BG are mentioned as follows:-

  1. i) An exporter authorized with recognized Export Promotion Council can be permitted to submit bond without BG on submission of a self-attested copy of the evidence of registration with Export Promotion Council
  2. ii) In the GST program, registration is state-wise meaning that the appearance “registered person” used in the said notification may mean different registered persons (distinct persons in regards to sub-section (i) of area 25 of the Act) if you happen to be having one Permanent Account Number (PAN) is authorized in more than one state.

It may happen that an authorized person may not fulfil the condition regarding foreign inward remittance according to one particular registration because of breaking and account of receipts and revenues across a different registered person with the same PAN. But the quantity of inward remittances received by all the registered persons, having one PAN, maybe Rs 1 crore or more and it also maybe 10% or more of finish export turnover. In such situations, the registered person can be permitted to submit bond without BG.

Jurisdictional Office

LUT/Bond shall be authorized by the jurisdictional Deputy/Asst Commissioner, having authority over the primary office of the exporter. The exporter is at freedom to provide bond/LUT before the Central Tax Authority of State Tax Authority until the management procedure for giving of taxpayers to specific authority is applied. The Central Tax authorities are to accomplish all exporters whether or not the exporter was authorized by the Central Govt. in the previous program.

Documents for LUT

Documents presented shall be authorized on the submission of the same as evidence of satisfying the circumstances of LUT. Self-declaration shall be authorized unless there is particular information otherwise. For example, a self-declaration by the exporter to the impact that he has not been charged should be adequate for the intention of notification no. 16/2017-Central Tax on July 7, 2017. Verification, if any, may be done on the post-facto basis. In the same way, status-holders have been given the service of LUT under the said notification and a self-declaration properly self-attested as evidence should be adequate.

It is repeated in the circular that recommendations are given in the circular on July 7, 2017, will come into restropective impact from July 1, 2017